Calling currency turns is so difficult it is sometimes surprising that analysts even attempt to predict currency movements. And yet so much rides on the rise and fall of the yen, euro, sterling or U.S. dollar.
So we all have to try, and if we do not then the market does it for us. For apart from gold and silver there is no avoiding currency, and even precious metals are quoted in U.S. dollars as non-dollar holders have discovered to their advantage over recent months.
Positive warning
The latest Bloomberg poll of currency analysts is positive on the outlook for the U.S. dollar and even more positive about the yen. But if you take a contrarian view that could be seen as the kiss of death, for when is the consensus right in financial markets?
Surely the lesson of the past couple of years is that the stronger the consensus the weaker the outlook. Who was still blowing with their trumpets with the Dow perilously high around 14,000?
That means we should not expect too many whistle blowers for the dollar. But the signs are very negative, just like they were before the stock market slumped.
Costly stimulus
Bailout and stimulus packages cost more-and-more, with a $2 trillion price tag on this week’s ill-received offering. Higher government spending means more bonds will be issued, more money supply will be created and over time that has to mean dollar devaluation.
The only positive spin on the U.S. dollar is its safe haven status, and that could well prove to be its immediate saviour but not for good reasons. This will most likely result from a further sell-off in major asset classes and a further move into cash, and that increases the demand for dollars and raises its value - for a while.
Escape plan
But we all know what happens to unsustainable bull markets, they crash. It is thus advisable to have something of an escape plan in this rush to the greenback.
Converting dollars into gold and silver bullion is increasingly popular, and an obvious way to diversify risk away from dollar holdings. For if the almighty dollar takes a fall this is the only place to hide.
